Saturday, December 22, 2012

A volatility spike

We’ll need to be on our toes from here on
out due to the political wrangling in Congress that is clearly roiling
the stock market. There’s a very real
possibility that the November-December rally could be unceremoniously cut short
in the next few days. One thing that
disturbs me is the chart pattern of the CBOE Volatility Index (VIX), shown
below.

Note the massive intraday reversal in this
broad market volatility gauge on Friday, Dec. 21. Such intraday trading ranges tend to be
re-visited in the near term, which means that we could end up seeing a spike in
market volatility in the coming days as the “fiscal cliff” debate reaches a
climax.